The South Coast property market is diverse and can be erratic, but one thing is constant – compared to other areas of the UK, it’s expensive. Even with the option of 95% mortgages, getting on the property ladder is just not viable for many aspiring homeowners, especially young first-time buyers.
One solution is Joint Borrower Sole Proprietor mortgages (JBSP mortgages for short). This is where up to four people pool their financial resources to increase their borrowing power and home ownership options. Not all borrowers need to be named as the property’s legal owner; you can opt for only the person or people who will live in the property to be named on the title deeds.
A JBSP mortgage is worth considering if you can’t afford to buy a home alone. It increases your borrowing power, allowing you to get on the property ladder sooner or look at homes in a higher price bracket. It’s essential to weigh the pros and cons, especially if you borrow with family members.
In this blog article, we’ll look at what a JBSP mortgage entails, what the lending criteria is and the pros and cons to help you make an informed decision.
Remember, it’s important to get impartial, professional advice before embarking on any type of mortgage, especially a joint one. The Mortgage Pod is a friendly mortgage broker based in Portsmouth with a great deal of experience in arranging joint borrower sole proprietor mortgages.
Please get in touch for advice on whether it’s the right choice for your circumstances.
Whether you’ve just had an offer accepted on a property and you’re ready to go, or you’re simply wondering how much you need to save for a deposit, it’s never too soon to reach out.
How does a JBSP mortgage work?
First, let’s clarify a few details about how joint borrower sole proprietor mortgages work.
Does a joint mortgage have to be 50-50?
For a JBSP mortgage, you can each own a different percentage of the property, 75/25%, 60/40%, 47/53% – whatever suits you! This is great, as it gives the borrowers flexibility depending on their income level.
It’s essential, of course, for co-borrowers to sit down and discuss ownership distribution at the outset. The non-legal owners must get legal advice as part of the mortgage terms and conditions.
How many borrowers can be on a JBSP mortgage?
Many mortgage lenders will allow up to four people as shared borrowers on a JBSP mortgage. This could include family members, friends, or even partners. It’s common for parents to help their children buy their first home using a JBSP mortgage product or for good friends to pool their financial resources and enter into a joint mortgage agreement.
How do the repayments on a JBSP mortgage work?
In a joint borrower sole proprietor (JBSP) mortgage, all borrowers share the responsibility for the monthly repayments. Who actually pays it can based on the level of financial commitment, e.g. 75/25%.
However, under the terms and conditions of the mortgage itself, all persons named on the mortgage are equally liable for 100% of it. It’s essential to document the amount each party will contribute to the mortgage payments at the outset.
How do mortgage lenders assess affordability for a JBSP mortgage?
JBSP mortgage lenders look at the financial circumstances of each borrower, including income, employment stability, credit history and assets. They evaluate the combined income of all applicants to determine the overall ability to make mortgage payments. This means that even if one of the applicants has bad credit, securing a loan may still be possible.
The mortgage lender will use the combined affordability of all borrowers, also considering the loan-to-value (LTV) ratio to determine how much they are willing to lend.
It’s important to remember that mortgage providers all have their own affordability and other criteria, so it’s a very wise move to seek advice from a mortgage broker, such as The Mortgage Pod, to find a competitive deal.
What are the benefits of a Joint Borrower Sole Proprietor mortgage?
Easier access to mortgage options
A big benefit of joint borrowers getting a mortgage is that it opens up more mortgage options from a wider range of lenders. The combined affordability of the applicants means that you may meet the eligibility criteria of more mortgage lenders with more favourable loan terms and better interest rates.
Higher borrowing capacity
Pooling financial resources also means that you can increase your borrowing power, which is a fancy mortgage advisor’s way of saying that you may be able to get a larger mortgage. This increases the choice of property you can afford. So you could potentially look for a spacious three-bed as your starter home rather than a cramped flat.
Full ownership rights
Despite the shared financial responsibility, the legal owner in a JBSP mortgage (i.e. the one listed on the title deeds and usually the occupier of the property) has full ownership rights. This means you are the one calling the shots on things like renovations.
Family support without incurring additional stamp duty liabilities
One of the main benefits of a JBSP mortgage is the fact that the stamp duty will be calculated based on the owners only, not on all borrowers.
This can be advantageous if a named borrower or supporter already owns a property such as their home and can, therefore, avoid the additional 3% stamp duty surcharge, which would be levied on any transactions involving the purchase of an additional property.
What are the disadvantages of a joint borrower sole proprietor mortgage?
Keeping up with mortgage repayments
If the owner and joint borrower face financial challenges or are unable to meet their mortgage commitments, the burden of making the monthly repayments on the mortgage falls on the other borrowers.
Life has a habit of being unpredictable, and even a non-legal owner like a parent could find themselves in financial difficulty, leaving them with potentially crippling monthly payments.
With this in mind, the credit risks involved are also worth noting. As all of the borrowers on a JBSP mortgage are responsible for the mortgage repayments, if one defaults, it will be noted on the credit history of all borrowers and may impact their ability to secure another mortgage in the future.
Family dynamics
Think very carefully before taking out a JBSP mortgage with family members. If everyone’s not on the same page about money, or if relationships change, it can lead to tension and family disputes.
If relationships with your family members are already on the rocky side, it may be best avoided! It’s super important to talk openly, set expectations, and get legal advice to enable informed decisions.
Legal complexity
Determining a fair distribution of ownership and responsibilities can be legally complex. It’s essential to get proper legal advice and documentation to protect the interests of all parties involved to minimise the risk of complications down the line.
Get in touch with The Mortgage Pod today
If you think a joint borrower sole proprietor mortgage might be a good solution for you, or you are still undecided, The Mortgage Pod can help.
As a mortgage broker, we have access to a wide range of JBSP lenders. We will make a thorough assessment of your circumstances, needs and goals in order to help you make the right decision. We will then set out to find you the best deal possible and even take care of the mortgage application on your behalf.
Contact us today to get started.
FAQs about joint borrower sole proprietor mortgages
Are there restrictions on the type of property that can be purchased with a JBSP mortgage?
Whereas some lending schemes only allow first-time buyers to purchase certain property types (e.g. new builds), JBSP mortgages allow you to buy any type of property (within the lender’s criteria, of course).
How is stamp duty calculated on a JBSP mortgage?
The stamp duty on JBSP mortgages is calculated based on the proprietor, i.e. the person who is named on the deeds and is calculated in the usual way. The joint borrower, i.e. the non-owner, will not impact the stamp duty liability associated with the transaction.
Is a JBSP mortgage the same as a guarantor mortgage?
lthough similar in nature, a joint borrower sole proprietor (JBSP) mortgage and a guarantor mortgage are different. In a JBSP mortgage, multiple borrowers share the responsibility of the loan repayments. Not all borrowers own the property in a legal sense. The legal owner or owners are usually the occupiers and persons named on the title deeds.
In a guarantor mortgage, a third party (the guarantor) provides additional security for the loan but does not have any ownership and is only responsible for the repayments if the borrower defaults.
